Dis cus si on Paper No. 16-040

Incentivizing Creativity: A Large-Scale Experiment

with Tournaments and GiftsChristiane Bradler, Susanne Neckermann,

and Arne Jonas Warnke

Dis cus si on Paper No. 16-040

Incentivizing Creativity: A Large-Scale Experiment

with Tournaments and GiftsChristiane Bradler, Susanne Neckermann,

and Arne Jonas Warnke

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http://ftp.zew.de/pub/zew-docs/dp/dp16040.pdf

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Incentivizing Creativity: a Large-Scale Experimentwith Tournaments and Gifts ∗

Christiane Bradler†, Susanne Neckermann‡, Arne Jonas Warnke§

April 2016

Abstract

This paper reports the results from a large-scale laboratory experiment investigating the

impact of tournament incentives and wage gifts on creativity. We find that tournaments

substantially increase creative output, with no evidence for crowding out of intrinsic

motivation. By comparison, wage gifts are ineffective. Additional treatments show that it is

the uncertain mapping between effort and output that inhibits reciprocity. This uncertainty

is prevalent in creative and other complex tasks. Our findings provide a rationale for the

frequent use of tournaments when seeking to motivate creative output.

JEL Classification: C91, D03, J33, M52Keywords: creativity, incentives, tournament, reciprocity, experiment, crowding-out

∗We gratefully acknowledge financial support from the Germany’s Federal Ministry of Education and Researchframework program “Economics of Science.” Further, we thank the SEEK research program for their financialsupport as well as the many seminar and conference participants whose valuable contributions made this papermuch better. Specifical thanks goes to Dirk Engelmann, Michael Kosfeld, Francois Laisney, Steve Levitt, JohnMorgan, Nick Zubanov, and Thomas Zwick. We thank Christian Bommer, Michael Dörsam, Radost Holler, SaschaLehman, Johannes Moser, Vera Schmitz, Jan Schneiderwind, Mattie Thoma, Jeannine van Reeken, and TimoVogelsang for outstanding research assistance. This paper was previously circulated as “Creativity is different:Comparing rewards across a creative and a routine task” and “Rewards and Performance: A Comparison Across aCreative and a Routine Task”.†ZEW Centre for European Economic Research Mannheim. E-mail: bradler@zew.de.‡Erasmus University Rotterdam, Tinbergen Institute, and ZEW. E-mail: neckermann@ese.eur.nl.§ZEW Centre for European Economic Research Mannheim. E-mail: warnke@zew.de.

1 Introduction

The share of workers performing tasks that require them to engage in non-routine problemsolving and creative thinking has increased substantially over the last several decades (Autoret al., 2003; Florida, 2002). This trend requires firms to adapt and change in many ways.One particular challenge relates to incentivizing workers to perform well in these types ofjobs. To date little is known about how creative performance responds to incentives.1 Bycomparison, there is a long tradition in economics that investigates the impact of work incentiveson motivation and productivity in simple and routine tasks. The purpose of this paper is to gain adeeper understanding of the incentive response function of creativity by investigating the extentto which lessons learned from simple tasks can be generalized to creative tasks.

Dozens of studies have explored the impact of financial incentives on routine tasks, confirmingwhat standard economic theory predicts: financial incentives have a positive effect onperformance because agents increase effort as long as the benefits they derive from eachadditional unit of output exceed their effort costs. Positive incentive effects have beendemonstrated for different types of performance-dependent rewards such as piece rates, whereworkers are rewarded according to their absolute output (for instance, Lazear, 2000) ortournaments, where workers are rewarded on the basis of their relative performance (Harbringand Irlenbusch, 2003).2 But even as early as 1999, Prendergast noted that these types of routinejobs are not very common.

Explicit financial incentives are, of course, not the only way to trigger workers’ performance.An established literature on gift exchange suggests that workers reciprocate wage gifts withhigher effort (Akerlof, 1982). This hypothesis has been tested and confirmed in a myriad oflaboratory experiments with both chosen and real effort (see, e.g., Fehr et al., 1997 for an earlystudy on the topic, or Fehr and Gächter, 2000 for an overview). There is, however, mixedevidence on the effectiveness of gift-exchange in the field (see, for example, Gneezy and List,2006). Like the literature on financial incentives, these studies have also almost exclusivelyutilized simple, routine tasks.

Taken together, these findings inform human resource management on how to optimally rewardemployees in jobs that involve a clearly defined and repetitive workflow. Yet it is criticalto understand whether these insights into the effectiveness of different rewards also hold for

1The nascent literature on incentivizing creativity in economics will be discussed below.2In the field, researchers observed work performance when, for instance, installing wind shields (Lazear, 2000),

picking fruits (Bandiera et al., 2005), or planting trees (Shearer, 2004); in the laboratory, subjects have beenrewarded for typing letters (Dickinson, 1999), cracking walnuts (Fahr and Irlenbusch, 2000), or filling envelopes(Falk and Ichino, 2006). A main advantage of these tasks is that they offer a precise and easily observable measureof the quantity (and the quality) of workers’ output.

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jobs which rely on creativity.3 To date, economic theory mostly abstracts from the nature ofthe task and predicts uniform effects of rewards across different tasks. One exception is theliterature on motivational crowding out that suggests that explicit incentives can sometimes becounterproductive. This is especially likely for tasks which are cognitively complex or high inintrinsic motivation, both of which are attributes of creative tasks (Bonner et al., 2000; Camererand Hogarth, 1999; Amabile, 1996; Shalley et al., 2004). The idea is that the provision offinancial incentives can “crowd out” the intrinsic motivation to perform the task (Deci et al.,1999).4 So far, the economic literature on crowding out has primarily focused on intrinsicallymotivated activities that are not creativity-oriented (e.g., Frey and Jegen, 2001, or Gneezyet al., 2011 for overviews) and still debates the existence of crowding out effects (e.g., Fangand Gerhart, 2012; Fehr and Falk, 2002; Charness and Gneezy, 2009). Gifts might be effectivein situations where crowding out effects can be expected to be strong, for instance for creativework, yet there is no previous literature exploring this hypothesis.

This paper reports the results from a laboratory experiment with more than 1000 subjects thataddresses these open issues. Subjects were randomly assigned to groups of five, with oneprincipal (“employer”) and four agents (“employees”). The four agents worked for three periodsfor their principal on either a creative or a routine task. Our basic design is 2 x 3: the routine andthe creative task with three treatments (control, gift, tournament) each. We also ran a host ofsupplementary treatments that serve to elucidate the underlying mechanisms. In all treatments,the principal’s payoff depended on the output produced by their four agents, who received anexogenously assigned fixed wage in each period. After agents worked on the task for oneperiod, principals could decide whether or not to provide additional rewards to their agents(at their own expense and without knowledge about agents’ performance in Period 1). In theTournament treatment, the principal could provide an additional monetary prize to the 50% bestperforming agents in her group. In the Gift treatment, the principal could opt for a monetarygift, half as large as the tournament prize, to all four agents in her group. In the third period,subjects were asked to work for the principal for one more round without additional rewards.

The experiment was run as a three period design to provide us 1) with a baseline measureof performance (capturing agents’ ability, intrinsic motivation to perform the task, and

3According to the dominant scholarly definition, creativity is defined as the production of ideas, solutions,or products that are novel (i.e., original) and appropriate (i.e., useful) in a given situation (Amabile, 1997). Incontrast, a task can be defined as routine “if it can be accomplished by machines following explicit programmedrules.” (Autor et al., 2003, p. 1283). The addition of “simple” refines this latter definition by restricting the set oftasks to those that are simple to understand and perform, i.e., that do not require much instruction, skill, or priorknowledge.

4According to self-perception theory (Bem, 1972), a reward causes a shift in people’s perception of why theyperform a task: own behavior is attributed to the reward and not to the enjoyment of the activity itself. Asa result, if a reward is subsequently removed, individuals are less motivated to work on the task (Deci, 1971;Lepper et al., 1973; Amabile, 1988, 1996; Joussemet and Koestner, 1999; Deci et al., 1999, among others). Otherreasons for a negative effect of rewards on performance include the exertion of “too much effort” or an increase inself-consciousness beyond an optimal level (e.g., Camerer and Hogarth, 1999 or Ariely et al., 2009).

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other-regarding preferences towards the principal), 2) with a measure of performance underboth types of rewards schemes for both tasks,5 and 3) with a measure of whether or nottreatments affected intrinsic motivation (which can only be captured in a subsequent periodwithout rewards). Both reward schemes were designed to have identical costs to the principaland overall benefits to the group of workers; they differed only in the distribution of benefitsamong workers. tThis feature allows conclusions about which of the two schemes is preferablegiven a fixed budget for rewards.

In addition to the two monetary reward treatments, we ran a control group for each task whichallows us to account for learning and fatigue and to standardize performance across the twotasks, rendering the effect sizes comparable.

We find a substantial and positive incentive effect of the Tournament in both tasks (routineand creative) in the second period. The effect sizes are of similar magnitude in the twotasks, suggesting that performance in both tasks is equally sensitive to competitive incentives.Subsequent to learning whether they were winners or losers at the end of Period 2, winners inthe Tournament outperformed comparable others in the control group in Period 3 even thoughthere was no subsequent tournament prize at stake. Losers, on the other hand, returned totheir baseline level of performance. This is evidence against the notion that financial rewardscrowd out intrinsic motivation and thus creative performance. To the contrary, it suggeststhat performance-dependent rewards in the form of tournament incentives increase creativeperformance and even have long-lasting effects on tournament winners.

Interestingly, the performance response to the wage gift differs between the two tasks. Subjectsin the routine task respond to the gift with an economically and statistically significant increasein their performance. The effect size is similar to that typically found in the literature on giftexchange (see, for instance, Fehr and Gächter, 2002). However, agents do not reciprocate thegift in the creative task. We discuss various potential explanations for this asymmetry and showthat the absence of reciprocity in the creative task is driven by employees’ lack of ability tofinetune their back transfer to the principal. Creative tasks are characterized by this inabilitysince the exact value of an idea is typically somewhat uncertain and only becomes apparentwith time, say, after an idea is implemented. The same was true in our experiment where thevalue of an idea to the principal depended on the originality rating of an idea. Overall our resultssuggest that creative tasks respond well to performance incentives and that responses to rewardsare very similar in creative and routine tasks; however, certain features inherent in creative workaffect the effectiveness of gifts as rewards. Therefore, wage gifts for employees in creative tasksmight not effectively boost creativity in practice.

5We use the term reward for both the tournament reward scheme as well as the wage gift as a shorthand, eventhough the wage gift is not a reward as it is commonly understood, i.e. rewarding past performance. Instead itis independent of both past and future performance. Fehr and Falk (2002), for example, have therefore describedwage gifts as implicit rewards.

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This study contributes to the small but growing literature in economics that studies the impactof rewards on creativity. Previous studies have explored how creativity is influenced by the sizeof the reward (Ariely et al., 2009) or the type of creative task (Charness and Grieco, 2012).Laske and Schroeder (2015) focus on the multi-tasking aspect of creativity by looking at howincentives affect quantity, quality, and novelty of creative output. Erat and Gneezy (2015), bycomparison, compare the effectiveness of piece rate incentives and competitive incentives andfind evidence for choking under pressure.6

We extend this nascent economic literature on creativity as well as the literature on incentiveprovision in five distinct ways. First, to our knowledge this is the first study to examine theeffectiveness of financial gifts for increasing creative performance. The lack of literature onthis subject is surprising given both the attention that gift exchange has received in the literaturein the context of incomplete contracts (see Fehr and Gächter, 2000 for an overview) and the factthat creative jobs seem to be a prime example of jobs that are complex, hard to monitor, andtypically governed by incomplete contracts. Second, as far as we know, this is also the first studyto compare the effect sizes of a performance-dependent, competitive incentive (tournament)with that of a performance-independent wage gift in one set-up. By doing so, our design allowsa direct comparison of the cost-effectiveness of the two reward schemes.7 Such a comparison isespecially relevant for creativity as theory suggests that these two types of rewards might affectit in fundamentally different ways (e.g., Byron and Khazanchi, 2012). Third, we look intowhether the incentive-response function differs between our creative and our simple, routinetasks. This comparison provides first insights into whether the lessons learned with simple tasksgeneralize to creative tasks, and, hence, whether an independent literature assessing incentivesfor creativity is needed. Fourth, we introduce the Unusual Uses task into the experimentalliterature on creativity. In our view, this task captures central elements of day-to-day creativityin organizations well (Woodman et al., 1993).8 In the task, subjects have to come up withas many and as original alternative uses for common objects such as a tin can or a sheet ofpaper. Hence, rather than measuring blue-sky creativity – even though Unusual Uses doesallow measuring the originality of ideas as well – the task focuses on whether subjects canplace common objects into a different context. This is a central element in business innovation

6Another study in this realm is Eckartz et al. (2012). They implemented a creative task as well as two controltasks for comparison (Raven’s IQ and a number-adding task) in one experimental set-up. They find that neither thetournament incentive nor a piece rate had any effect on performance in any of the three tasks. This makes it hardto draw clear conclusions about whether or not rewards fail to enhance creativity, since their rewards did not affecttheir control groups either. A likely explanation is that baseline motivation was very high in all three tasks.

7We used a tournament scheme rather than a piece rate as the performance-dependent reward scheme becausetournaments are widely used in practice to reward individuals for creative performance and innovations (Bruntet al., 2012; Kremer and Williams, 2010). For instance, companies increasingly allocate creative tasks to onlineplatforms with creative contests (such as www.innocentive.com or www.jovoto.com) to complement their in-houseresearch and development. These platforms offer tournament-based compensation for various creative tasks suchas scientific problem-solving, software development, and graphic art design (Boudreau et al., 2011).

8The task has also been used by Dutcher (2012) in his study on the effects of telecommuniting on productivity.

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and in corporate idea-suggestion systems. In that sense, the paper complements the existingliterature that mostly focuses on blue-sky creativity or on tasks that involve very little creativitysuch as those that involve pattern recognition. An advantage of the task is that it measuresand captures creativity along several different dimensions: quantity (the number of answers),breadth (the spread of answers across different idea categories), as well as originality (measuredas either the statistical infrequency of answers or by subjective evaluation). The availability ofthese separate measures allows us to address issues such as quantity - quality tradeoffs whenassessing the effect of incentives on creative performance. Finally, we provide another datapoint to the discussion on whether or not it is possible to foster creative performance throughfinancial rewards.

The paper is structured as follows. Section 2 describes the experimental set-up, the tasks, andthe treatments. Section 3 presents our main results, Section 4 investigates mechanisms andlooks into a number of supplementary issues, for instance, the absence of reciprocity in thecreative task, the mechanism via which tournaments increase effort, and post-treatment effects.Section 5 concludes.

2 The Experiment

In the following, we introduce the experimental tasks, the set up, the treatments, and theexperimental procedures.

2.1 The Tasks

In order to assess the effectiveness of rewards for routine and creative tasks, we implementedboth types of tasks in the experiment.

We use the “slider task” as a proxy for simple, routine tasks in the workplace (Gill and Prowse,2012). The slider task is a real effort task that has a number of desirable attributes. It is easyto explain and to understand, and it does not require prior knowledge. It is identical acrossrepetitions, involves little randomness, and leaves no scope for guessing. The task features acomputer screen displaying 48 sliders on scales that range from 0 to 100. Figure 1 shows anexample of the screen as it was presented in the experiment.

Initially, all sliders are positioned at zero. The aim of the task is to position as many sliders aspossible at exactly 50 within 3 minutes by using the mouse.9 Each slider can be adjusted andre-adjusted an unlimited number of times. While moving the mouse, subjects cannot be surewhether they positioned the slider at exactly 50. The exact position of the slider is displayed

9Keyboards were disconnected during the task to prevent the usage of the arrow keys.

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to the right of the scale only when the subject stops using the mouse. We measure a subject’sperformance as the number of correctly positioned sliders within the alotted time. Gill andProwse demonstrated that this measure corresponds closely to the effort exerted by a subject.Before the start of Period 1, subjects were given one minute to practice the task.

We measure creative performance via the “Unusual Uses Task.” Originally developed asGuilford’s Alternative Uses Task (Guilford, 1967), it was later incorporated in the Torrance

Test of Creative Thinking (Torrance, 1968, 1998), the most widely used and validated test toassess creativity (Kim, 2006).10 In the Unusual Uses Task, participants are asked to nameas many, unique and unusual uses for an ordinary item, such as a tin can, as they can. Thiscaptures a central element in applied business innovations: the recombination of existing bitsof knowledge in novel ways (Weitzman, 1998; Simonton, 2004). Specifically, the task requiresdivergent thinking or “thinking outside the box,” which is one of the most important componentsof the creative process (Runco, 1991). One advantage of the Unusal Uses task is that it providesa clean numerical measure of creative productivity.

In the experiment, subjects had to sequentially brainstorm unusual uses for three different items:a sheet of paper, a tin can, and a cord. Subjects were informed that they should not limitthemselves to a particular size of the item. Moreover, the unusual use that they come up withcould require more than one of the items; for instance, the use could require more than onesheet of paper or several tin cans. The order in which subjects had to work on the items wasfixed: (1) paper, (2) tin can, (3) cord.11

In the creative task, just as in the slider task, subjects had a test period of one minute. In thistest period, subjects were given the item “old tire” to familiarize themselves with the task andthe input mask on the screen. We used the three standard measures of the Unusual Uses task toevaluate subjects’ responses: fluency, flexibility, and originality (Guilford, 1959), and we toldsubjects how their answers would be scored.12 Fluency refers to the number of valid answers.An answer is valid if the stated use is possible to implement and the realization is at least vaguelyconceivable. Fantastic or impossible uses are not counted. Examples of a valid use of a tin canare, for instance, a flower pot, a pen container, and a drum. In contrast, examples of invalidanswers are the use of a tin can as a television, a computer, or a window.13 In the experiment,

10In order to assess overall creative potential, the Torrance Test of Creative Thinking also includes a number offigural elements that require drawing skills. The more specific Unusual Uses task, however, best captures the typeof creativity that we want to study.

11Controlling for order effects is not important in our design as we use the same order in the control group andonly look at changes in performance between periods and between treatment and control groups.

12The original Guilford Test uses a fourth criterion for scoring, elaboration, which refers to the degree of detailof the answers. We refrained from using this fourth dimension because it is largely effort-based and would haveconstrained our capacity to score answers within the time frame of the experiment.

13Usual uses, such as a food container in the case of the tin can, were not scored in the original versionof Guilford’s Alternative Uses Task or the TTCT. However, the original instructions of the test (as well as ourinstructions) do not explicitly exclude usual uses from scoring. We therefore scored usual uses as valid answers.

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each valid use was given one point.

The second evaluation measure, flexibility, reflects the variety of a subject’s responses andis determined by counting the number of different categories into which responses fall. Forinstance, the answer candleholder falls into the category ‘decoration’, and answers like a rattleor a drum into the category ‘musical instruments.’ Subjects received one point for each category.Common categories for the tin can include ‘non-food containers’ (for instance, a pen container),‘sporting goods’ (for instance, a football), and ‘communication’ (for instance, a tin can phone).Overall, there were roughly 55 categories for each of the three items that we used.

Finally, the originality of responses was measured by the statistical infrequency of answers. Inorder to get an idea of the frequency of responses, we conducted a pre-test with 127 participantswho worked on the three items under a fixed wage scheme. We then tabulated all valid answersfor each item according to the frequency with which the answer was given and constructed arating scale to assess answers in the experiment. This scale allotted one additional point toa valid answer if less than 8% (“original”) and two additional points if less than 1% (“veryoriginal”) of participants gave that answer. In comparison to other measures of creativity thatrely on expert ratings, our statistical approach to originality is more reliable and objective.14

Examples for an original use of a tin can are an insect trap or an animal house. Very originalanswers include using the tin can as a scarecrow, a shower head, a treasure chest, or a grill (byputting coal into it and meat on top). Table 1 illustrates further examples of frequent answersand categories as well as original, very original, and invalid responses for all items.

Scoring was conducted by research assistants who were carefully acquainted with the scoringprocedures and blind to the treatments. In order to test whether the creative task is moreintrinsically motivating than the routine task, we had 100 subjects work on both tasks andrate their interest in the tasks on Likert-scales from 1 to 7. According to this assessment,the creative task was rated as statistically significantly more interesting than the routine task(Wilcoxon rank-sum test, p=0.02).

2.2 Basic Set up

The experiment uses a principal-agent set up, where subjects are randomly assigned to the roleof a principal (“employer”) or an agent (“employee”). This feature is important for reciprocityconsiderations as it allows 1) for voluntary financial transfers from the principal to the agent, and

Excluding usual uses, however, does not alter any of the results reported below (results available upon request).14The answers gathered during the experiment itself allowed us to update the rating scale to more accurately

reflect overall statistical infrequency. The rating scale used for analyzing our results is based on more than700 subjects (pre-test subjects as well as subjects in all main treatments including the supplementary Feedbacktreatment.) The results do not depend on whether or not we use an updated or the original, pre-test rating scale.Finally, our results are robust to using an expert panel for grading originality rather than the statistical approach(details below).

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2) agents’ effort to affect the principal’s payoff, which gives agents a clear way of reciprocatingif they wish to do so. At the start of the experiment, subjects were assigned to groups of fiveparticipants, each consisting of one principal and four agents. The role and group assignmentremained fixed throughout the experiment.

All sessions were identical in their basic structure: employees were asked to work for theprincipal for three 3-minute periods on either the routine or the creative task. In each period,employees received a fixed wage that was exogenously set by the experimenter and announcedat the start of the respective period. In the two reward treatments, principals could opt for oragainst a financial gift or a tournament before the start of Period 2 (details below). In the Gift

treatment, Period 2 endowments were augmented by the amount of the gift when the principalopted for the gifts. In the Tournament treatment, agents could receive a tournament prize at theend of Period 2 if the principal opted for the tournament scheme and if their performance wasabove average. In all treatments, Period 3 was identical to Period 1 in that endowments werefixed and there were no additional rewards or tournaments. The three-period design allows us tomeasure agents’ baseline performance under a fixed wage in Period 1, the performance responseto the reward in Period 2 and post-treatment performance under a fixed wage in Period 3.15

Period 3 is important as detrimental effects of rewards on intrinsic motivation cannot necessarilybe detected when rewards are present as the increase in monetary incentives might outweighthe reduction in intrinsic motivation. After the three working periods, agents completed acouple of brief decision tasks; questions about their socio-demographic characteristics such asgender, field of study, level of education, high school grade and leisure activities; and questionsregarding their personality traits.

Employers’ payoffs consisted of a fixed pay component and a variable pay component thatwas determined by the performance of the four agents in their group. All payoffs duringthe experiment were stated in “Taler,” the experimental currency unit.16 In the routine task,principals received 5 Taler for each slider that was correctly positioned by their four agents.In the creative task, principals received 5 Taler for each validity point (valid answer), 5 Talerfor each flexibility point (category mentioned), and 5 Taler for each originality point (5 Talerper original answer and 10 Taler per very original answer) given by their four agents. Agentslearned about the scoring procedures and the principals’ payoff function in the instructions.

In order to create an environment that carried an opportunity cost of working, we offered agentsa time-out button (Mohnen et al., 2008) which was displayed at the bottom of the screen duringall working periods. Each time an agent clicked the time-out button, the computer screenwas locked for 20 seconds, prohibiting the entry of creative ideas or the movement of sliders,

15As agents work for a fixed wage in Period 1, their effort does not affect their own payoff. It does, however,affect the payoff of their principal. Therefore, baseline performance in Period 1 provides us with a joint measureof intrinsic motivation for the task, their altruism towards the principal, and a subject’s ability.

16 The exchange rate was 100 Taler = 1 Euro.

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and 5 Taler were added to the agent’s payoff. This procedure has been used in a variety ofexperiments to ensure that experimental subjects do not merely work on the experimental tasksout of boredom due to the absence of alternative activities (Eckartz et al., 2012; Mohnen et al.,2008).17

2.3 Design and Implementation of Treatments

In order to address our research questions, we implemented a 2 x 3 design consisting of aControl group, a Tournament treatment, and a Gift treatment for both the routine and the creativetask.

In the Control group, agents were paid a fixed wage in each period and principals were not ableto implement rewards. In the Tournament and the Gift treatments, principals and agents wereinformed at the end of period 1 that the principal could invest in a reward scheme for period 2.Regardless of whether the principal decided to implement the reward scheme, agents receivedinformation on the type of the reward (tournament or gift, depending on the treatment) and onthe associated costs to the principal. Before the start of Period 2, agents learned whether theirprincipal had instituted the reward. Subjects were also told that principals did not receive anyinformation about their agents’ performance until the very end of the experiment. This ensuredthat agents perceived the wage gift as “kind,” rather than as compensation for good performancein Period 1. Moreover, it avoided an endogenous selection of rewarded agents based on Period1 performance.

In both treatment groups, principals and agents received a fixed wage of 300 Taler at thebeginning of each period. The same is true for the Control group with the exception of Period2 in which the fixed payment was doubled to mirror (expected) payoffs in the treatment groups(see below). In the Gift treatment, the principal had to decide whether or not to provide anadditional monetary gift of 300 Taler to each of her four agents at a total cost of 200 Taler toherself.18 In the Tournament treatment, the principal could also transfer a total of 1200 Taler toher four agents at a cost of 200 Taler to herself. However, the payment structure was different.

17 Subjects could push the time-out button as long as the remaining time in the working period was at least 20seconds. In order to ensure that subjects were aware of the time-out button and understood its usage, we had a trialperiod that lasted 60 seconds in which subjects could test the time-out button.While the time-out button prevents any “production” in the simple, routine task, we cannot rule out that subjectsin the creative tasks continued thinking about the problem during the time that their screen was locked. This doesnot mean, however, that subjects in the creative task did not face any opportunity costs of time. The timeout buttonmay still hinder production since it precludes a critical task – entering ideas. Overall, the use of the time-out buttonwas limited, suggesting that research subjects felt their time was better spent completing the assigned task.

18The use of efficiency factors is common practice in the experimental literature on gift exchange (see, forinstance, Brandts and Charness, 2004) and is thought of as representing situations in which gifts are more valuableto the recipient than to the donor. The attractiveness of the reward was important in our setting because we weremainly interested in agents’ responses to rewards rather than in whether or not principals opted for the rewards.

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Agents’ performance dictated whether or not they received a reward. Specifically, the top 50%of performers (two out of four agents) received a bonus of 600 Taler each in Period 2, whereasthe bottom 50% received nothing.

When learning about the principal’s reward decision, employees also learned that performancewould be evaluated immediately after Period 2 ended, and that the winners and losers ofthe Tournament would be revealed before Period 3 started. Finally, after Period 2 and afterthe revelation of winners and losers (presented as private information on a subject’s screen),subjects in both treatments were informed that there would be no further rewards. In alltreatments (including the control group) it was further announced that the payment structurein Period 3 would be identical to that in Period 1.

This study focuses on agents’ responses to rewards, rather than on principals’ reward decisions.Therefore, the rewards were relatively cheap for the principal, and endowments in the controlgroup mirrored (expected) payments in the two treatment groups when the principal opts for thereward. Specifically, endowments in Periods 1 and 3, periods without rewards, are identical inthe control and the two treatments groups: the principal as well as each of her four agentsreceive 300 Taler.19 In Period 2, principals in the control group receive an endowment of100 Taler and agents an endowment of 600 Taler each. This mirrors the expected payoffsin the treatment groups when the principal opts for the reward scheme (unconditional giftor tournament, depending on the treatment).20 This procedure ensures that any performancedifferences between the treatments and the control goup are solely driven by the rewards andnot by other factors such as distributional concerns or income effects.21 Table 2 in the Appendixprovides an overview of the fixed and variable pay components for all periods, treatments, androles.

2.4 Hypotheses

Before we present our results, we briefly summarize the theoretical predictions for ourtreatments.

Tournament treatment. According to standard economic theory, a tournament incentive should

19On top of their endowment, principals earn additional money from the performance of their agents.20If the principal decided against the reward, the principal and her agents received 300 Taler each as fixed Period

2 endowments in both the Gift and Tournament treatments (identical to payments in Periods 1 and 3), while theyearned 100 and 600 Taler in the control group, respectively. Therefore, we cannot assess responses to negativereward decisions in an experimentally clean way.

21See, e.g., Fehr and Schmidt (1999) on inequality aversion. Our set up also disentangles pure intention-basedreciprocity from other distributional concerns (Charness, 2004) by allocating the same payoffs to subjects in thetreatment groups (with positive reward decisions) and the control group in Period 2. The only difference thatremains is that control group payoffs were exogenously imposed by the experimenter, while treatment payoffswere chosen by experimental subjects, the principals.

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increase average effort and performance (Alchian and Demsetz, 1972; Lazear and Rosen, 1981).Since economic theory tends to abstract from the type of task, this should be true in both thecreative and the routine task. Theories on crowding-out, on the other hand, suggest that intrinsicmotivation might be impaired by the reward (e.g., Deci, 1972; Lepper et al., 1973; Deci et al.,1999). This holds in particular for the creative task that is more intrinsically motivating. Whencrowding out is strong, the reduction in intrinsic motivation would outweigh the incentive effectand Period 2 performance would fall. Otherwise, there would be a positive response to thetournament incentive in Period 2, and a reduction in intrinsic motivation – if permanent – canbe detected in Period 3, where the tournament reward is no longer at stake (Frey and Jegen,2001; Bowles and Polania-Reyes, 2012).22

Gift treatment. Established theories on reciprocity predict that agents reciprocate principals’gifts with increased effort (Akerlof, 1982; Levine, 1998; Dufwenberg and Kirchsteiger, 2004;Falk and Fischbacher, 2006). Thus, we expect a positive performance response to the gift inboth tasks. Depending on how sustainable these responses are, this effect might carry over toPeriod 3.23

2.5 Procedures

The experiment was conducted at the experimental laboratories at the universities of Frankfurt,Mannheim, and Heidelberg, Germany. Participants were recruited via the Online RecruitmentSystem ORSEE (Greiner, 2004). The experiment was computerized using the software z-Tree(Fischbacher, 1999).

All interactions within the experiment were anonymous and communication was not allowed.Subjects were seated randomly at a computer workstation upon arrival and were provided withhard copy instructions that detailed the random matching of groups and roles (“employer” or“employee”), the basic structure of the experiment, the task (routine or creative), and the scoringprocedures. A translation of the original instructions can be found in the Appendix. A fewpieces of information, such as fixed wages in Periods 2 and 3 as well as the availability ofrewards and reward decisions, were presented on the computer screen during the experiment.Before the experiment started, subjects had to complete a series of questions about how theiractions would determine their own and their principal’s payoffs to ensure that they understoodthe instructions.

22Unlike other models of crowding out, in Benabou and Tirole’s (2006) model, crowding out only persists aslong as the incentives are in place. Crowding out that is temporary and tied to the presence of incentives cannotbe directly identified in our design. Most discussions of crowding out (e.g. in the education literature) focus onthe permanent crowding out as a consequence of temporary incentives. It is that phenomenon that we attempt tocapture in this paper.

23Theoretically, agents could also reciprocate the investment in the tournament. We will address this point inthe results section.

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At the end of the experiment, subjects’ payoffs in the experimental currency unit “Taler” wereconverted into Euros at an exchange rate of 100 Taler = 1 Euro. Subjects were paid in private.Sessions (including instructions, the experiment, and questionnaires) lasted about 75 minutesand subjects earned 15 Euros on average.

3 Main Results

3.1 Descriptive Statistics and Methods

Table 3 provides an overview of the descriptive statistics split up by treatment and task.Although we don’t discuss supplementary treatments until later, for completeness they areincluded in the balance table. Overall, our sample contains 1123 subjects: 224 employersand 899 employees.24 As we are interested in assessing how rewards affect performance, weran sessions until each treatment included roughly 60 agents with a positive reward decision.25

Overall, we observe 116 rewarded employees and 60 control group employees working onthe slider task and 116 rewarded employees and 56 control group employees working on thecreative task in our main treatments. We also have data for 364 additional agents with positivereward decisions in supplementary treatments that we describe further below. The treatmentsare largely balanced with regard to the location of the experiment, gender, age, and field ofstudy, albeit some differences are statistically significant. As we will show in our main analyses,controlling for these characteristics does not alter the results.

The last row of Table 3 displays means and standard deviations of the baseline performancein Period 1 across treatments and tasks. Baseline performance provides a measure of agents’motivation to work on the task in the absence of rewards and comprises agents’ ability, intrinsicmotivation for the task, as well as their desire to benefit the principal. Mean performancevaries between 16.6 and 22 in the slider task, where performance is measured by the numberof correctly positioned sliders within each three minute work period. In the creative task,average performance varies between 16 and 18. Performance here represents a subject’s scorein the creative task (see Section 2 for details on the scoring procedure). Apart from theTournament treatment in the slider task, there are no statistically significant differences betweenthe treatments and the respective control groups in either task. In the former, individuals’performance is slightly better in Period 1 than that of subject in the control group (Wilcoxonrank-sum test, p<0.05). To account for these initial performance differences, we control for

24We had to exclude 9 employees from the analysis due to an insufficient knowledge of the German language.25Principals did not receive any information on agents’ performance in period 1 and agents knew this. Thus,

as expected, our data does not reveal a significant relationship between reward implementation and baselineperformance. We will report statistics on principals’ decisions regarding reward implementation as well as agents’behavior in case of reward denial further below.

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baseline performance in the analyses that follow and use the change in performance betweenPeriods 1 and 2 as the outcome variable.

Figure 2 displays the change in raw performance from Period 1 to Period 2 by treatment andtask. The figure shows that performance in the slider task increases across both treatment groupsbetween these two rounds. The performance increase is particularly strong in the Tournament

treatment, but is also clearly detectible in the Gift treatment. The moderate performanceincrease in the control group is probably a consequence of either learning or a response tothe higher fixed wage in period 2.26 The pattern is somewhat different in the creative task whereonly agents in the Tournament treatment improve their performance between Periods 1 and 2.There are no notable changes in mean performance in either the Gift treatment or the Control

group.

Thus, the raw data suggest that performance increases in the creative as well as in the simpletask in response to the tournament. However, only employees in the simple task seem to respondto the gift. Below, we will corroborate these findings with more detailed analyses.

3.2 Further Analyses

In the analyses that follow, we compare the change in performance of individuals in thetreatment groups with that of individuals in the respective control group. We make performancecomparable between the different periods (and thus different items on the creative task) andthe two different tasks by standardizing performance.27 Further, we address potential meanreversion by controlling for baseline performance. This also allows us to exploit the panelstructure of our experiment.

In order to assess the effect of the different rewards on performance in period 2, we fit thefollowing regression model using ordinary least squares (OLS):

Std. Performance Period 2i = β0 + β1 Std. Performance Period 1i

+ β2 Std. Performance Period 1i × 1 Slider-Task i

+ β3 Gifti + β4 Gifti × 1 Slider-Task i

+ β5 Tournamenti + β6 Tournamenti × 1 Slider-Task i

+ γXi + εi.

(1)

26The higher fixed wage mirrors the wage of agents in groups with a positive reward decision by the principal(at least in expectation). This allows us to disentangle reward effects from endowment effects. This is of particularinterest for the Gift treatment as it disentangles reciprocity from the response to the wage increase per se (Charness,2004).

27We use the standard approach of subtracting the mean performance of the control group (in the respectiveworking period and task) and dividing the resulting difference by the standard deviation of the control group in therespective task. Therefore, the standardized performance of the control group has a mean of zero and a standarddeviation of one. Treatment dummies (and additional controls) remain non-standardized to ease interpretation.

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Standardized Period 2 performance of individual i is the dependent variable. It is regressed oni’s baseline performance in Period 1 as well as on the treatment dummies, and, in the mostcomprehensive model, a set of person-specific control variables (Xi). Treatment dummiesas well as baseline performance are interacted with a dummy that indicates the type of task(here: the simple task). This allows the treatment effects as well as the impact of baselineperformance to differ between the creative and the simple task. The creative task control groupserves as the reference category. Standard errors are adjusted for potential heteroscedasticityin all regressions.28 Column I presents the most parsimonious specification and does notcontrol for baseline performance. Column II of Table 4 shows the results for equation 1.Column III adds additional control variables including age, age squared, sex, field of study,time period (semester, exam period, semester break), and location. Adding these controls doesnot alter the results.29 Similarly, the results are robust to the exclusion of baseline performanceas a control (see Column I of Table 4). When discussing the results below we refer to thespecification in Column III which includes all control variables. Column IV reports the resultsof a supplementary treatment that will be discussed below (Section 4.1).

As was predicted by standard agency theory, the Tournament treatment has a large andstatistically significant positive effect on performance in both tasks. This effect is substantiallylarger than that of the Gift treatment (Wald test, p<0.01 for both tasks). This suggests thatcreative performance is responsive to incentives and that tournaments have the power tosubstantially increase creative output. Interestingly, the Tournament effect is very similar inboth tasks: Agents increase their performance by approximately 0.7 standard deviations ascompared to the control group in both the creative and the simple task. This is first evidenceagainst crowding out as crowding out would have implied a smaller performance increase(if not a performance decrease) in the intrinsically motivating creative task. The analysis ofperformance in Period 3 below will further corroborate this finding.30

While the Tournament worked well in stimulating creative performance, the Gift did not. Thesimple task shows that this absence of reciprocity is not driven by the gift being too smallor too unimportant to have any effect. In the simple task the Gift induced an economicallyand statistically significant effect (p<0.05). The effect size of 0.2 standard deviations is smallrelative to that of the tournament, but well in line with what other studies on reciprocity have

28The results are robust to using cluster-robust standard errors (by session) that control for potential intra-sessioncorrelation.

29The regressions in Columns III and IV also include observations from a supplementary feedback treatment,discussed below, that was run concurrently with the main treatments. We include observations from this treatmentin order to estimate the coefficients of the other control variables, introduced in column III, with greater precision.We also ran more comprehensive specifications with further control variables, such as the Big Five and incentivizedrisk and reciprocity measures, but their inclusion does neither improve the fit of the model nor does it affect theresults.

30Also, responses to the tournament do not differ between agents with above- and below-average baselineperformance. Results available upon request.

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found.31 The absence of reciprocity in the creative task is surprising and suggests that theresponsiveness to rewards differs between simple and creative tasks, at least with respect togifts. Below we will look further into this asymmetry in an effort to uncover the mechanismbehind these findings.32

Performance in the creative task is multi-dimensional, and an obvious concern is that theobserved performance increase is caused by subjects increasing the quantity of ideas at theexpense of their originality – a pattern that might not generally be desirable. The slider taskis different in this respect as it is one-dimensional, and an overall performance increase isunambiguously positive for the principal. The Unusual Uses task allows us to look into thisissue. In the Unusual Uses task, creativity is scored along three dimensions: 1) the numberof valid uses (validity), a measure of quantity, 2) the number of categories into which answersfall (flexibility), and 3) the originality of ideas (statistical infrequency of a response). The mainanalysis above used a aggregate measure of these three dimensions as the dependent variable.Table 5 shows the results split up by these different dimensions. Interestingly, the pattern ofresults that we discussed for the overall score in our main analyses is reflected in all threedimensions of creativity. Most noteworthy, there is no evidence that the strong performanceincrease in the Tournament treatment comes at the expense of the originality of the answers.To the contrary, the share of originality points out of the total number of points – referred to as“originality rate” in the table – is even slightly higher in the Tournament treatment. That is, theincreased originality rate suggests that the number of original uses increases more than the totalnumber of uses.33

It is also insightful to look at the principals’ reward decisions. Three quarters of the principalsin the Tournament treatment invested in instituting the tournament. This is true in both thesimple and the creative task. In the Gift treatment, by comparison, three quarters of the slider

31We find no evidence for gender differences in either the Tournament or the Gift treatment.We can also look at the use of the time-out button to examine whether the effects in the Tournament and the Gifttreatment are driven by a reduction in the number of breaks or by a performance improvement during actual worktime (results available upon request). In both tasks, the Tournament effect remains positive and significant (albeitmuch smaller) after controlling for the number of breaks. In contrast, the performance increase in response to theGift in the slider task seems to be solely driven by a reduction in breaks and, hence, by an extension of actualworking time.

32Performance effects in response to the tournament are equal between the creative task, in which there is noreciprocity, and the simple task in which there is reciprocity. This suggests that reciprocity should not play a bigrole for explaining the performance increase in response to the tournament.

33One might be concerned that statistical infrequency does not accurately reflect what is commonly understoodas an “orignal” idea. Therefore we checked the robustness of our results on originality using subjective originalityratings. Towards that end, we asked five research assistants unfamiliar with the experiment and blind to thetreatments to evaluate the originality of each answer. The evaluators were instructed to assign one point to answersthat they perceived as original, two points to answers that they perceived as very original, and zero points otherwise.Using the score from this subjective originality assessment as the dependent variable does not alter the results:originality increases under the Tournament incentive and does not increase in response to the Gift treatment. Theseresults are available from the authors upon request.

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task principals opted for the gift, but only approximately half of the creative task principalsdid so. This is suggests that at least some of the principals might have anticipated that the giftwould not work well in the creative task.34 We also asked principals to provide reasons for whythey did or did not choose to implement the reward.35 In both tasks the main driver for thereward decision was profit maximization, i.e. an expectation that subjects would or would notrespond favorably to the treatment. Hence, the larger share of principals who opted for the giftin the slider task did so because they expected that this would raise their profits, and the shareof principals who opted against the gift in the creative task did so because they did not thinkthat the gift would pay off.

Another piece of evidence documenting the lack of reciprocity in the creative task stemsfrom the behavior of agents when the principal refused to implement the reward. Theseresults have to be interpreted with care as 1) the numbers of observations are low, and 2) thefixed payments in the control group were designed to be equal to (expected) payments underpositive, but not negative reward decisions. Hence, treatment and control groups are not payoffequivalent in cases of negative bonus decisions.36 In total, 116 agents were affected by negativereward decisions. Figure 3 shows the results. The solid bars represent agents’ performanceresponses (as compared to the control group) to positive reward decisions. These effect sizescorrespond to the main regression results discussed above. Hatched bars represent agents’performance response to the announcement that the principal had not invested in additionalrewards. Interestingly, the announcement that there would be no tournament has no effect onagents’ performance in either task. Hence, performance responses to tournaments are similar increative and simple tasks for both positive and negative reward decisions. Again, an asymmetrybetween the two tasks emerges when looking at the Gift treatment. While agents substantiallyreduce their performance in response to a negative Gift decision in the slider task, they remainunaffected in the creative task. Hence, neither positive nor negative reciprocity is at play inthe creative task, while both are active in the slider task. In the slider task the response to anegative reward decision is substantially larger than the response to a positive reward decision.This is in line with other evidence showing that negative reciprocity tends to be stronger thanpositive reciprocity (Kube et al., 2013). Most noteworthy for our purpose is that the absence ofreciprocity in the creative task holds not only for positive but also for negative reward decisions.

Overall our results suggest that tournaments effectively boost performance in both the simple,

34There is no evidence for intra-session-correlation regarding the reward implementation. Results upon request.35Principals could mark whether they opted in favor of the reward 1) to maximize own profits, 2) to be nice to

the agents, 3) to maximize the total payoff of all participants in their group, (4) to reward good performance (incase of the Tournament), or 5) other reasons. If the principal denied the reward, they could indicate whether they1) thought that the rewards were not profitable for their own payoff, 2) did not want to provide extra earnings tothe agents, 3) did not want agents to earn more than themselves, or 4) other reasons.

36Principals and agents earn a fixed wage of 300 Taler in Period 2 when the principal decides against giving areward, whereas they are endowed with 100 Taler and 600 Taler, respectively, in the control group.

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routine task as well as in the creative task. There is no evidence for motivational crowding outin the creative task. This is good news for firms, as it suggests that creativity can effectivelybe raised with financial rewards. In contrast, financial gifts work well only in the routine task.Here agents reciprocate the gift in an order of magnitude similar to that found in other studieson reciprocity. There is no reciprocal response in the creative task. The absence of reciprocity inthe creative task holds for both positive and negative reward decisions. Principals seem to haveanticipated the lack of response because a substantially smaller fraction of employers institutedthe gift in the creative task. This finding has important implications for firms as creative taskstend to occur in settings where contracts are incomplete – that is, precisely in settings in whichorganizations might want to exploit reciprocal inclinations in an attempt to elicit additionaleffort. In the following section, we therefore further explore the absence of reciprocity in thecreative task in an effort to uncover the underlying mechanism.

4 Supplementary Investigations

4.1 The Mechanism behind the Absence of Reciprocity in the CreativeTask

This section discusses potential mechanisms that can explain why agents do not reciprocate thegift in the creative task but do so in the simple, routine task.

One possible explanation could be the availability of an “excuse for low performance” in thecreative task. Such an excuse could be available if effort were only weakly correlated withperformance in the creative task. If this were true, agents who are motivated to reciprocate byimage concerns (but who don’t have an innate desire to reciprocate) might put in less effortin the creative task, hiding behind a story in which they tried hard to come up with ideas butsimply did not succeed. Such an excuse is not available in the simple task, by comparison,where increased effort directly translates into more correctly positioned sliders and, in turn,increased performance. While this explanation is plausible, there is recent evidence that showsthat reciprocal behavior is not affected by the availability of these kinds of “excuses” for notperforming well (van der Weele et al., 2010).

A related explanation relies on the notion that the performance measure in the creative task isless sensitive to agents’ increased effort than the one in the simple task. That is, reciprocitymight lead to effort increases in both tasks, but the effort increase might not translate intosignificantly higher output in the creative task. The results of the Tournament treatment speakagainst this explanation. In this treatment the financial stakes were identical across the twotasks, and both tasks see a performance increase of similar magnitude. This suggests that the

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responsiveness of output to incentives is similar across the two tasks.

Finally, agents did not have perfect knowledge about how much surplus (in terms of the valueof their ideas) they generated for the principal in the creative task. Although the procedurefor evaluating ideas was detailed in the instructions, subjects could not perfectly predict theexact number of points that they were generating for the principal. This is true because agents’scores depended on the validity of answers as well as their originality (statistical infrequency).Hence, even though subjects probably had a rough understanding of whether they providedfew or many answers and of whether their answers were off-the-chart creative or relativelyunoriginal, there was still some uncertainty with respect to the exact number of points generatedfor the principal.37 In the simple task, by comparison, the value generated for the principal wasfully transparent, as subjects could easily assess how many sliders they positioned correctly. Apossible explanation therefore is that this difference in agents’ control over how much surplusthey generate for the principal drives the differences in reciprocal behavior between the twotasks. Hennig-Schmitt et al. (2010) and Englmaier and Leider (2010) provide initial evidencethat this type of uncertainty can reduce agents’ reciprocal behavior. This mechanism should bemore relevant in the Gift treatment where agents presumably want to tailor their back transferto the perceived kindness of the gift, and should be less relevant in the Tournament treatmentwhere agents most likely trade-off the cost of effort with the perceived likelihood of winning,which is independent of the profit they generate for the principal.

In order to investigate whether this mechanism explains the results, we ran two supplementarytreatments: Creative Transfer Control and Creative Transfer Gift. These treatments wereidentical to the control group and the Gift treatment in the creative task apart from the followingaspects: First, at the end of each period, agents were told how many Taler they had generatedin the preceding round. Second, they could then decide how much of this surplus to transferto the principal. Hence, agents had perfect control over how much money would accrue to theprincipal as a result of their work. Surplus that was not transferred was “lost” in the sense thatit did not benefit the principal (and agents’ payments were independent of their performance).As in the Gift treatment, the principal had the option to provide a monetary gift of 300 Talerto each of her agents before the start of Period 2 in the Creative Transfer Gift treatment. Thetreatment Creative Transfer Control serves as an additional control group that allows us toseperate out a change in the response to the gift from changes in behavior that are solely drivenby either the provision of feedback on the number of points earned or by the ability to choosea transfer amount. Comparing behavior in Creative Transfer Gift with that in Creative Transfer

37Just like in our experiment, agents in a business context typically also have a rough sense of the value oftheir ideas but cannot be sure about their precise implications for the bottom line: Ideas typically go throughvarious stages of evaluation, and there is often a relatively large time lag betweeen the creation of an idea and itsimplementation. Finally, the value of an employee’s idea to the firm is frequently determined by the market, sayby the demand for a new product, which is also not perfectly known during the idea generation stage.

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Control therefore allows us to assess whether reciprocity emerges when agents have the powerto fine-tune their back transfers in the creative task.

Table 3 shows that baseline performance is very similar in Creative Transfer Control andCreative Transfer Gift and slightly higher than average performance in the other treatmentsutilizing the creative task.38 Only about two thirds of all subjects transfer the maximum amountin Period 1. About 20% transfer less than half of the generated surplus while the remainingsubjects transfer intermediate amounts. In the following analysis, we will focus on transfers, astransfers and not actual performance influence principals’ payoffs and thus signal reciprocity.As in the main analysis, we control for baseline transfer – each agent’s transfer in Period 1 – inall regressions.

The results are striking. Agents in the Creative Transfer Gift treatment transfer significantlymore of their surplus in Period 2 (after the gift) than in Period 1 (Wilcoxon signed-rank test,p<0.01). They also transfer significantly more of their surplus in Period 2 than do agents in theCreative Transfer Control group in the same period (Wilcoxon rank-sum test, p<0.05). Figure4 depicts treatment effects for all Gift treatments. The bars show coefficients from separateOLS regressions analyzing the effect of the Gift treatment on Period 2 effort (or, in the caseof the supplementary treatments, amount transferred), controlling for baseline performance(transfer). The graph shows not only that subjects reciprocate the gift in the Creative Transfer

Gift treatment, but also that the order of magnitude of the effect is similar to the increase inoutput in the Gift treatment in the simple task. Column IV of Table 4 reports the results fromthe associated regressions. Again, one can see that reciprocity emerges in the Creative Transfer

Gift treatment and that the effect is similar to that in the simple, routine task.39

Taken together, the findings from these two additional treatments suggest that the lack ofreciprocity in the creative task was driven solely by agents’ inability to control and fine-tunetheir impact on the principal’s bottom line. When agents have that control, they reciprocate thewage gift in both tasks and the effect sizes are of similar magnitude. Such control is, however,typically relatively low for creative tasks as well as for other complex problem solving tasksthat are prevalent in many white-collar jobs. In these settings information on the exact value ofeffort (and ideas) to the principal is often not available. Thus, in practice this specific feature

38This may not be surprising as the transfer option allows agents to decouple their work from what accrues tothe principal. Therefore, agents who intrinsically enjoy working on the task but that are also inequality averse, canwork harder in these treatments without fearing that they create unduly large profits for the principal.

39Performance itself is not affected by the gift, which is not surprising given that many subjects had substantialleeway in increasing transfers without increasing performance.Just like in the main Gift treatment, we find no evidence for gender differences in response to the gift in the CreativeTransfer Gift treatment.With respect to principals’ reward decisions, only 8 participants were affected by a negative reward decisionby the principal, making it impossible to reliably estimate this effect. The existing data, however, suggest thatnegative reciprocity re-emerges in the Creative Transfer Gift treatment with a mean performance decrease of 0.82in response to a negative gift decision, similar to what was observed in the slider task.

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inherent in creative tasks may hinder the emergence of reciprocity.

4.2 Analyses of Post-treatment Effects in Period 3

We now briefly turn to performance in Period 3 in order to assess whether the gift or thetournament had any long-lasting effects on performance. The analysis of Period 3 is particularlyinteresting for the Tournament treatment as any crowding out of intrinsic motivation might havebeen dominated by the tournament’s incentive effect in Period 2 (see Bowles and Polania-Reyes,2012 for a recent overview). Also, Period 3 performance can reveal whether winning or losing atournament has an independent effect on subsequent performance, as subjects in the Tournament

treatment learned at the end of Period 2 whether they did or did not belong to the best 50%(winners/losers) in Period 2 and, hence, whether or not they won the tournament prize. Period3 endowments were identical to those in Period 1 and subjects were aware that there would beno further rewards or incentives.

Analogous to the analysis of the main treatment effects in Period 2 (see Equation 1), we assessPeriod 3 performance by comparing the change in treatment group performance from Period 1,with that of the control group.40 This allows us to account for effects associated with learningand exhaustion. Table 6 shows the results.

For ease of interpretation, we separate the analyses by task. Columns I and II show the resultsfor the slider task, and columns III and IV depict the results for the creative task. In each case,the first column (I and III) reports overall treatment effects. Interestingly, our main treatmenteffects carry over to Period 3 even in the absence of further gifts or tournaments. The reciprocaleffect of the gift in the slider task is statistically significant and even slightly larger in Period 3than in Period 2. Hence, reciprocity in the slider task has a persistent effect. The same patternholds in the Creative Transfer Gift treatment (see columns III and IV of Table 6). As was to beexpected, there is no evidence for reciprocity in Period 3 in the original Gift treatment (columnsIII and IV).

In line with standard economic theory, performance in the Tournament treatment is lower inPeriod 3 than in Period 2 due to the removal of the tournament incentive. It is noteworthy,however, that Period 3 performance exceeds Period 1 performance. This suggests that theTournament has a sustainable performance-enhancing effect. Columns II and IV reveal thatthe tournament winners drive this overall performance increase in Period 3. They work roughly0.5 standard deviations harder than would-be winners in the control group. Interestingly, losinga tournament does not affect subsequent behavior. Losers’ performance is either not statisticallysignificantly different from their baseline performance or is even a bit higher.

40The results are robust to including Period 2 performance, using fixed-effects linear panel models orrandom-effects models.

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For real-world applications, it is important to understand the mechanism behind this positivewinner effect. One possible explanation is learning on the task. By definition, tournamentwinners have worked more and harder on the task than have other participants. To the extentthat the tasks are subject to a steep learning curve, increased Period 2 effort and performancecould translate into increased Period 3 performance even if Period 3 effort was the same fortournament winners and tournament losers. It is unlikely, however, that this effect is drivensolely by learning as performance in the control group increases only slightly between Periods 1and 2 and is relatively similar in Periods 1 and 3 (see Figure 5). Alternative explanations are that1) the positive feedback associated with winning a tournament could heighten self-confidenceand intrinsic motivation (Eisenberger and Shanock, 2003; Vansteenkiste and Deci, 2003), orthat 2) winning a tournament could put individuals in a positive mood, which would in turnpositively affect their performance.41 These two explanations differ with respect to whetherthe positive effect from winning should raise subsequent performance only for the task athand (task-specific confidence or intrinsic motivation), or whether it should also spill over to adifferent, unrelated task (general mood effect).

To shed light on this issue, we conducted two supplementary tournaments. In thesesupplementary tournament treatments, subjects were asked to work on both the routine andthe creative task in alternating orders (either slider (Period 1) - creative (Period 2) - slider(Period 3) (SCS) or creative (Period 1) - slider (Period 2) - creative (Period 3) (CSC). Identicalto the main Tournament treatments, agents received fixed wages in Periods 1 and 3, and theprincipal could implement a tournament in Period 2. In total, 55 subjects participated in theSlider-Creative-Slider (SCS) treatment, and 46 subjects in the Creative-Slider-Creative (CSC)

treatment. The right-hand columns of Table 3 show summary statistics for these observations.There are no significant differences in baseline performance between these two supplementarytournament treatments and the respective control groups. For this comparison, and for analyzingtreatment effects below, we use the creative task control group as a benchmark for baselineperformance and Period 3 performance in CSC, and the slider task control group to assessperformance in Periods 1 and 3 in SCS. Note that we did not include additional control groupswith varying tasks but without the tournament. We therefore cannot control for changes inPeriod 3 performance that are caused by the change in the tasks per se, rendering our findingsbelow suggestive rather than conclusive. Table 7 presents the results on Period 3 performance.The results are split up by treatment and task.

Columns I and II report results from the slider task (overall and split up by winners and losers).Columns III and IV do the same for the creative task. Analogously, Period 3 treatment effectson the the mixed tasks SCS and CSC are depicted in columns V-VIII. Each regression controls

41For a review of mood effects on performance see, for instance, Lane et al. (2005). Related to mood effects,Kräkel (2008) discuss the notion that tournaments may induce a “joy of winning” which in turn affects subsequentperformance. DeJarnette (2015) proposes a theory of effort momentum, with similar predictions.

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for baseline performance and compares effects to the respective control group. We find noevidence for positive spillover effects – neither overall nor for winners or losers separately. Thetreatment effects in the mixed tasks treatments, SCS and CSC (Columns V-VIII) are positivebut small and statistically insignificant. Hence, winning a tournament or receiving positivefeedback may lead to higher subsequent performance, but we have suggestive evidence thatsuch an increase is limited to the task at hand. Possible mechanisms are increased task-specificself-confidence or intrinsic motivation. Our data does not lend support for more general andtask-unspecific effects on intrinsic motivation, such as mood effects.

4.3 Looking into the Effectiveness of Tournaments

Tournaments affect behavior via two different channels: 1) a concern for a good relativestanding and 2) the monetary incentive (the tournament prize). For policy, it is important tounderstand how much of the tournament effect is driven by the (costly) prize and how muchis driven by (cheap) relative performance information. To disentangle these two channels, weconducted a Feedback treatment that conveyed the same information about relative rank thanthe Tournament treatment but without monetary consequences.42

In the Feedback treatment, the principal had to decide before the start of Period 2 whether or notrelative rank information would be provided to her agents at the end of Period 2. The provisionof relative performance feedback was costless to the principal and payoffs in this treatmentwere identical to those in the control group in all three rounds. When the principals opted forfeedback provision, agents were informed at the beginning of Period 2 that they would learn atthe end of Period 2 whether or not they belonged to the best 50% of their group. Hence, theFeedback treatment mirrored the information structure in the Tournament treatment, but withoutmonetary consequences. We observe 56 agents with a positive feedback decision in the slidertask and 68 agents with a positive feedback decision in the creative task in this treatment.

Table 8 displays the coefficient estimates of the feedback treatment from our main regressions.We find that Feedback increases performance by about 0.18 standard deviations in both tasks.The coefficent estimates are marginally statistically significant in period 2. The effect sizes arestatistically significantly lower than those in the Tournament treatment in both tasks (Wald-tests,p<0.00) and suggest that about one fourth of the increase in the Tournament treatment is drivenby a concern for a good relative standing while the remainder is driven by the desire to win thetournament prize.

Effect sizes are of similar magnitude in period 3 but lose statistical significance. These overall

42There is a growing literature in economics that documents the impact of relative performance feedback onbehavior. So far, the evidence is mixed with respect to the direction (positive or negative) of the effect. Azmatand Iriberri (2010) and Blanes i Vidal and Nossol (2011), for example, find that feedback increases performance,whereas Barankay (2011) shows that performance rankings decrease performance.

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effects hide, however, that individuals who received positive relative performance feedbackperform significantly better than comparable others in the control group, mirroring our findingsfor tournament winners in the Tournament treatment.43 Recipients of negative performancefeedback, however, are not demotivated (in both the Feedback as well as the Tournament

treatments). Their performance is not statistically significantly different from their baselineperformance.

Taken together, the findings from both the Tournament and Feedback treatments suggest that thechance of receiving positive feedback enhances performance but that the effect is only strongwhen performing well is also rewarded with a monetary prize. This holds for both tasks as wellas for ex ante incentive effects and for overall post-treatment performance.

5 Conclusion

This paper reports the results from a large-scale laboratory experiment that studies the impactof both explicit incentives (tournaments) and implicit rewards (wage gifts) on creativity. To thebest of our knowledge, this is the first study to analyze the impact of wage gifts on creativity.We also have not come across another study that compares the effectiveness of wage gifts andtournaments in one set-up, providing insights into the relative effect sizes of these two rewardson both a creative and a simple task. The inclusion of the simple task allows us to benchmarkthe effectiveness of the different rewards on creativity and to link our results on creativity to theexisting literature on tournament incentives and wage gifts that uses simple tasks.

We report two sets of interesting results. The first relates to the tournament incentive. Ourresults suggest that a tournament prize for above-average performance has a substantial positiveincentive effect on creativity. The effect size is similar to that on performance in the simpletask. This indicates that incentives can influence creativity and that there is no crowding outof intrinsic motivation.44 About one fourth of this effect seems to be driven by a concern forrelative rank, as is suggested by a supplementary treatment in which subjects work towardsreceiving the same rank information as in the tournament but without financial consequences.Thus, it is largely the monetary prize that is responsible for the positive incentive effect ofthe tournament. Interestingly, the tournament does not only increase the quantity of ideassubmitted, but also their quality in terms of originality. Further, tournament winners continueto outperform their own baseline performance and agents in the control group. A set ofsupplementary treatments suggests that this is driven by an increase in task-specific motivation

43In fact, the coefficients on Tournament winner and Positive relative feedback are statistically indistinguishablein both tasks (Wald-test creative task, 0.19; Wald-test simple task, p=0.25).

44Erat and Gneezy (2015) find evidence for choking under pressure in their creative task that is more “blue skye”in nature.

23

that does not spill over to other tasks. Losers of the tournament show no signs of demotivationin both tasks. The effectiveness of tournaments is in line with the observation that creativetasks are often organized in a tournament framework in the real world. For example, architectson virtually all major projects are chosen via a winner-take-all competition. The same is trueon most innovation platforms such as innocentive.com that many companies now utilize forcreative input.

A second set of interesting results relates to the financial gift. We find an asymmetry in itseffectiveness between the two tasks. While the gift effectively triggers a reciprocal responsein the simple, routine task, there is no evidence for reciprocity in the creative task. Thissuggests that the incentive response function differs between creative and simple tasks, despitethe similarity of responses in the Tournament treatment. Interestingly, this asymmetry holds forboth positive and negative reciprocity, and principals seem to have anticipated this asymmetryas many more principals opted for the gift in the simple task than in the creative task. Weexplore a set of explanations for this finding and, through the implementation of additionaltreatments, can trace the effect back to agents’ lack of knowledge about how exactly their efforttranslates into profit for the principal. While agents perfectly observe how much output theyproduce in the simple task, there is some uncertainty in the creative task because the value oftheir ideas to the principal depends, for example, on an originality rating. This is true for ourcreative task, but also holds for creative and complex tasks more generally. One implication ofour finding therefore is that wage gifts might not boost performance in white-collar jobs thatinvolve complex tasks and creativity. This is important to note as creative and complex tasksare typically governed by incomplete contracts that might have rendered gift exchange a viableway of increasing effort. These results also speak to the ongoing debate about reciprocity inthe lab versus in the field (e.g., Kube et al., 2012 or Kessler, 2013) and suggest that one reasonfor the observed absence of reciprocity in the field could be agents’ imperfect knowledge abouthow their effort affects their principal’s profits.

But even if potential benefits from ideas were fully transparent, our study suggests that wagegifts are less effective than tournaments in triggering agents’ performance in both tasks. Whilethe tournament was profitable for the principals that opted for it, the gift was not.45 In thisstudy, tournaments clearly emerge as preferable to wage gifts in terms of fostering creativity.Nevertheless, tournaments do have well-understood downsides that should be considered beforeimplemention. For instance, tournaments have been shown to increase sabotage among workers(for instance, Harbring and Irlenbusch, 2011), to induce a self-selection of more risk-tolerantagents (for instance, Eriksson et al., 2009; Dohmen and Falk, 2011), and to make low performers

45The payoff consequences of the Gift in comparison to the control group (difference in average effort per workgroup minus costs of the gift) are -0.27 Euro in the slider task, -1.82 Euro in the creative Gift treatment and -0.29Euro in the treatment Creative Transfer Gift. In the Tournament, principals’ payoff increased by 1.39 Euro in theslider and 1.45 Euro in the creative task.

24

more likely to give up early in the contest (for instance, Berger et al., 2013).

The present study calls for future work that addresses whether the positive tournament effectthat we find, also holds for contests with high-stakes. Previous studies indicate that high stakescause choking under pressure and, hence, a non-linear relationship between reward size andeffort, and that this is particularly true for cognitively challenging tasks (Ariely et al., 2009;Bracha and Fershtman, 2012). Further, creative tasks come in many different forms. Charnessand Grieco (2012) show that responses to incentives might differ between tasks that have aclearly delineated solution and tasks that are open and require pure out-of-the-box thinking. Inour opinion, our task serves as a good proxy for everyday idea generation in firms. However,organizations also rely on other types of creative input that our task could not capture, such asidea implementation or breakthrough innovations. Future work needs to test the robustness ofour findings for other kinds of complex and creative tasks.

25

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31

Figures and Tables

Figure 1: Screenshot of the Slider Task

Note: The figure presents a screenshot of the slider task. The screen displays theremaining time and the number of correctly positioned sliders. The time-out button isdisplayed at the bottom of the screen.

32

Figure 2: Difference in Performance between Periods 2 and 1 by Treatment and Task

-4-2

02

46

810

1214

Diff

eren

ce b

etw

een

Rou

nd 2

and

1

Control Gift Tournament

90% Confidence Interval

Slider Task

-4-2

02

46

810

1214

Diff

eren

ce b

etw

een

Rou

nd 2

and

1

Control Gift Tournament

90% Confidence Interval

Creative Task

Note: The bars show the difference in mean performance between Period 2 and Period 1. The whiskersdepict 90% confidence intervals of paired t-tests.

33

Figure 3: Effect Sizes for Positive and Negative Reward Decisions by the Principal

Note: The dependent variable is standardized performance of agents in Period 2. The barsshow the estimated regression coefficients of separate OLS regressions. Performance ismeasured as the number of correctly positioned sliders in the simple task and as the scoreachieved in the creative task. The regressions control for baseline performance in Period 1.The respective control group (slider or creative) serves as the reference category. Statisticalsignificance: * p < 0.1, ** p < 0.05, *** p < 0.01.

34

Figure 4: Overview of Effect Sizes for All Gift Treatments

-.2

0.2

.4.6

Gift Slider Gift Creative Gift Creative Transfer

90% Confidence Interval

Note: The bars show the estimated regression coefficients of separate OLSregressions. Standardized performance (transfer) in Period 2 is the dependent variable.Performance is measured as the number of correctly positioned sliders in the simpletask, as the score achieved in the creative task, and as the amount tranferred in thecreative transfer treatments. The regression controls for baseline performance inPeriod 1. The respective control group serves as the reference category.

35

Figure 5: Difference in Performance between Periods 3 and 1 by Treatment and Task-4

-20

24

6D

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bet

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Note: The bars show the difference in mean performance between Period 3 and Period 1. The whiskersdepict 90% confidence intervals of paired t-tests. Note, this figure is on a bigger scale than Figure 2 toimprove readability.

36

Table 1: Examples of Answers and Categories for the Unusual Uses Task by Item

Paper Tin can Cord

Frequent Paper airplane Pen container ShoestringsAnswers Paper hat Tin can phone Dog leash

Toilet paper Ball Fishing line

Frequent Toys Non-food container Clothing accessoriesCategories Clothing Communication Leashes

Hygiene/Cleaning Sport devices Fishing

Original Lampshade Bedframe PulleyAnswers Filter Animal house Rope bridge

Game of cards Insect trap Bowstring

Very original Sound amplifier Scarecrow Trap (to play a trick)Answers Pin wheel Shower head Straightening of acreages

Artificial snow (for decoration) Treasure chest To cut a cake

Invalid Pencil Computer GlassesAnswers Television Window Electric conductor

Surfboard Shoes Rope for bungee jumping

37

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the

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oma

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ired

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ston

the

diff

eren

cebe

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cein

the

resp

ectiv

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enta

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oup.

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ifica

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lsar

ede

note

das

follo

ws:

*p<

0.1,

**p<

0.05

,***p<

0.01.

39

Table 4: Treatment Effects in Period 2

I II III IV

Gift Treatment -0.019 0.026 -0.000 0.019(0.143) (0.099) (0.101) (0.100)

Gift x Slider-Task 0.375** 0.209* 0.195* 0.178*(0.170) (0.109) (0.107) (0.107)

Tournament Treatment 0.795*** 0.736*** 0.735*** 0.731***(0.173) (0.143) (0.142) (0.142)

Tournament x Slider-Task 0.166 -0.058 -0.063 -0.064(0.178) (0.166) (0.167) (0.167)

Creative Transfer Treatment 0.087(0.105)

Creative Transfer x Gift 0.249**(0.115)

Baseline 0.657*** 0.631*** 0.656***(0.076) (0.062) (0.046)

Baseline x Slider-Task 0.002 0.100 0.071(0.094) (0.079) (0.066)

Intercept -0.000 -0.000 0.589 0.187(0.093) (0.062) (0.496) (0.451)

Controls NO NO YES YESObservations 348 348 472 611R2 0.146 0.546 0.564 0.554

Note: This table reports the estimated OLS coefficients from Equation 1. The dependentvariable is the standardized performance in Period 2 and refers to the number of slidersmoved in the simple task, the creativity score in the creative task, and the amount transferredin the Creative Transfer treatments. Heteroscedastic-robust standard errors are reported inparentheses. The estimation includes data from agents in groups with a positive rewarddecision by the principal. Additional control variables are age, age squared, sex, location,field of study as well as a set of time fixed effects (semester period, semester break, examperiod) and observations from and controls for a supplementary feedback treatment that wasrun concurrently (Section 4.3 and Table 8 describe the treatment and the results). The latterare included to increase the precision with which we can estimate the control variables.Significance levels are denoted as follows: * p < 0.1, ** p < 0.05, *** p < 0.01.

40

Table 5: Dimensions of Creativity: Treatment Effects on Standardized Performance in Period 2

Creative TaskScore Validity Flexibility Originality Originality Rate

I II III IV VGift -.0220 0.005 0.002 -0.101 -0.0180

(0.120) (0.126) (0.115) (0.144) (0.023)

Tournament 0.746*** 0.805*** 0.601*** 0.719*** 0.045**(0.161) (0.169) (0.148) (0.181) (0.021)

Period 1 0.615*** 0.598*** 0.613*** 0.523*** 0.173**(0.061) (0.062) (0.056) (0.071) (0.071)

Intercept 1.908 1.620 1.233 3.168 0.293(2.029) (1.917) (1.685) (2.72) (0.395)

Controls YES YES YES YES YESObservations 240 240 240 240 215R2 0.484 0.470 0.515 0.346 0.109

Note: This table reports OLS estimates of Equation 1, where we regress standardizedperformance in Period 2 on baseline performance and treatment dummies. Column I reportsresults on the aggregated creativity score. Columns II to IV report the results on the differentsub-dimensions of the creativity score. Column V displays treatment effects on the originalityrate. The originality rate equals achieved originality points divided by the total number ofpoints for a subject’s answers (subjects with zero points were dropped in this column). Theestimation includes data from agents in groups with a positive reward decision by the principal.Additional control variables are age, age squared, sex, location, field of study as well as a setof time fixed effects (semester period, semester break, exam period) and observations from asupplementary feedback treatment (with separate treatment dummies, see Section 4.3 and Table8). The latter are included to increase the precision with which we can estimate the controlvariables. Heteroscedastic-robust standard errors are reported in parentheses. Significance levelsare denoted as follows: * p < 0.1, ** p < 0.05, *** p < 0.01.

41

Table 6: Treatment Effects in Period 3

Slider CreativeI II III IV

Gift 0.259** 0.268** 0.033 0.031(0.110) (0.110) (0.113) (0.114)

Tournament 0.223 0.365***(0.153) (0.126)

Creative Transfer -0.038 -0.035(0.122) (0.122)

Creative Transfer x Gift 0.366*** 0.362***(0.110) (0.110)

Tournament Winner 0.503*** 0.493***(0.189) (0.159)

Tournament Loser -0.018 0.242*(0.159) (0.140)

Controls YES YES YES YESBaseline YES YES YES YESIntercept YES YES YES YESN 232 232 379 379R2 0.712 0.728 0.540 0.548

Note: This table reports OLS estimates of standardized performances in Period 3 analogousto Equation 1. Performance is measured as the number of correctly positioned sliders,as the score achieved in the creativity task, and as the amount transferred in the CreativeTransfer treatments. Heteroscedastic-robust standard errors are reported in parentheses.The estimation includes data from agents in groups with a positive reward decision by theprincipal and observations from a supplementary feedback treatment (see Section 4.3). Thelatter are included to increase the precision with which we can estimate the control variables.Additional control variables are age, age squared, sex, location, field of study as well as aset of time fixed effects (semester period, semester break, exam period). Significance levelsare denoted as follows: * p < 0.1, ** p < 0.05, *** p < 0.01.

42

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43

Table 8: Period 2 and Period 3 Effects of the Feedback Treatment

Slider-Task Creative-TaskFeedback 0.184* 0.182*Period 2 (0.108) (0.102)

Feedback 0.118 0.171Period 3 (0.132) (0.129)

Positive Relative 0.303 0.319**Feedback Period 3 (0.196) (0.148)

Negative Relative -0.028 0.035Feedback Period 3 (0.135) (0.144)

Controls YES YES

Note: This table reports the estimated OLS coefficient estimates for the Feedback Treatmentfor Periods 2 and 3. Period 3 effects are split up by the whether person learned that they didor did not belong to the 50% top performers. Feedback effects for Period 2 are regressioncoefficients from specification IV in Table 4 while post-treatment effects for Period 3 arefrom Table 6. Heteroscedasticity-robust standard errors are reported in parentheses. Controlvariables include observations from the Gift treatment, the Tournament treatment, and theControl group. Additionally, we control for age, age squared, sex, location, field of studyas well as a set of time fixed effects (semester period, semester break, exam period). TheControl group serves as the reference category. Significance levels are denoted as follows:* p < 0.1, ** p < 0.05, *** p < 0.01.

Appendix

Translated Instructions (Original in German)

General Instructions

Please read the instructions carefully. If you have any questions, please raise your hand. Keep inmind that communication among participants is prohibited during the experiment. Please turnoff your mobile phone and other electronic devices for the entire duration of the experiment.During the experiment, you will have the opportunity to earn money in the form of Taler. Howmany Taler you will earn depends on a random draw as well as on your decisions and thedecisions of other participants. All Taler that you earn in the experiment will be converted toEuros at the end of the experiment. The exchange rate is

100 Taler = 1 Euro

44

At the end of the experiment you will receive the amount of money that you have earnedduring the experiment in cash. Your earnings will be rounded up to full 10-cent amounts. Wewould like to point out that your name is only required for the settlement of payments at theend of the experiment. Your name will not be connected to any decisions you make during theexperiment. Your actions are completely anonymous.

Assignment of roles

At the beginning of the experiment a computer will randomly assign you the role of an“employer” or an “employee”. You will keep this role for the entire experiment. Further, youwill be randomly assigned to groups of 5 participants. One employer and four employees formone group. The groups will remain the same for the entire experiment.

Structure of the experiment

The experiment consists of two parts. Part 1 is the actual experiment. Employees only interactwith their employer in Part 1. Part 2 consists of a series of further decision tasks. Onlyemployees will be active in Part 2. The instructions for Part 2 of the experiment will be shownon your computer screen once Part 1 is finished. After to Parts 1 and 2, both employees andemployers will be asked to fill out a questionnaire. Please find the instructions for Part 1 below.

45

Part 1 Instructions

Fixed payment

Part 1 of the experiment will be carried out in three rounds. In the first round employers andemployees will receive a fixed payment of 300 Taler. The amount of the fixed payment for thesecond and third round will be displayed on the computer screen shortly before the respectiveround starts.

Variable payment

Employers earn additional money. How much they earn is determined by the work performanceof the four employees in her group.46 Towards that end, employees are asked to work on asimple task in each round. The task will be the same in every round. Employers’ additionalearnings depend on the overall performance of her four employees in all three rounds. Theemployer will not receive any information on agents’ performance or her own earnings until thevery end of the experiment. Employees are free to decide how much effort they want to exertand thereby how much money they want to earn for their employer. Employees’ own earningswill not be influenced by their work performance. Employees do, however, have the optionto press a time-out button while they work on the task. This button will lock the screen for20 seconds so that they cannot work on the task during that time period. Employees receive5 Taler for each time that they press the time-out button. The button can no longer be pressedwhen there are less than 20 seconds left in a round. Employers are also allowed to work on thetask in all three rounds. Their performance, however, will neither influence their own paymentnor their employees’ payments. The employer can also press the time-out button. Pressing thebutton, however, does not translate into extra income for the employer. The employer cannotearn additional Taler during time-out.

[The original instructions had the description of the creative or the simple, routine task at thispoint.]

The employer will not receive any information related to how many points each of her agentsgenerated. Her total payoff will only be revealed at the end of the experiment. Employees willalso not be informed about the total amount of Taler generated by themselves or other groupmembers. All participants will be called individually for payment. Please remain in your seatat the end of the experiment until your seat number has been called.

[Further instructions, depending on the treatment were displayed on the computer screen.]

46For simplicity we use the feminine (she, her) to describe employers, but this does, of course, refer to bothsexes and employers will be both male and female.

46

Task description: Creative taskAs described above, the first part of the experiment consists of three rounds. In each round,participants will work on a task that requires creativity.

Example of the task

Please list as many, as different and as unusual uses for a rubber tire as you can think of. Do

not restrict yourself to a specific size of a tire. You can also list uses that require several tires.

Do not restrict yourself to uses you are familiar with, but think of as many new uses as possible!

You will receive the same task in each round with varying objects. You will have three minutesper round. There will be a break of a few minutes after every round.

Evaluation of the task

The employer receives 5 Taler per valid answer. Answers are “valid” when they are practicableand when their realization is at least vaguely conceivable. Please describe the possible use in afew words if necessary (Using the example of the rubber tire: “sled” or “flower box” are clearanswers, whereas “target” would require further explanation such as “ball game with tire astarget”.).

For original (rare) answers, the employer receives 5 extra Taler. For very original (very rare)answers, the employer receives 10 extra Taler. An answer is considered (very) “original” if only(very) few people think of it. To this end, the answers are compared to a catalog of answers thatis based on the answers of more than 100 test persons.

Furthermore, answers will be assigned to different answer categories. The employer receives5 extra Taler for each category answers fall into. Using the example of the rubber tire: “cartire” and “bicycle tire” belong to the category “tires as wheels” and result in 5 extra Taler. Theanswer “swing seat” is a different category (category “toys”) and yields an additional 5 Taler.At the end of the experiment, we will ask you to fill out a brief questionnaire while we evaluatethe answers of all employees. We will calculate the employer’s variable payment from the totalscore of all four employees over the three rounds.

47

Task description: Simple, routine taskIn every round you will work on a task that requires you to use your mouse to move “sliders”on the computer screen. You will see 48 sliders on your screen in each round. These slidershave to be moved to position 50. Each slider starts at position 0 and can be moved anywhereup to position 100. The number displayed to the right of each slider indicates the slider’scurrent position. You can adjust the slider as often as you like. Your working time is set to3 minutes (180 seconds) per round. If you have moved all 48 sliders to the correct positionbefore the end of a round, you will automatically be directed to a new screen with 48 additionalsliders. Thus, you can move a maximum of 96 sliders to the correct position during the180 seconds of each round. During each round, you will see some information at the topof your screen. You will see the round number, the remaining time for the current round,and the number of sliders that you have moved to position 50 in the current round so far.Before the first round starts, you will be able to test the task for 60 seconds. Your performance inthe test round will not affect your own or your employer’s payoff. The employer will receive 5Taler for each slider that you correctly position in the three rounds. At the end of the experiment,the number of correctly positioned sliders of all four employees of a group across all threerounds are summed up to calculate the variable payment of the employer.

48